Are Family Trusts Still Viable Asset Protection Vehicles?

You may need to reconsider aspects of the appointment of trustees in the use of family trusts as an asset protection vehicle following the Federal Court decision in Richstar Enterprises (ASIC v Carey).

The Richstar Enterprises case arose out of the ongoing litigation over the collapse of the Westpoint Group.

The decision centered around the definition of “property” as set out in the Corporations Act.

The Federal Court found that if a beneficiary is deemed to have effective control over the trustee’s power to make distributions, then the beneficiary still has an interest in the asset despite the property being an asset of the trust.

The traditional view has been that a beneficiary of a discretionary trust would not hold an interest in the assets of the trust but, rather, would have an expectation which is not sufficiently certain or proprietary in nature to amount to “property”.

Therefore, if the trust is seen to be a mechanism to defeat creditors where the trustees, for all intents and purposes, are the “alter egos” of the trust’s beneficiaries, then for the purposes of Section 9 of the Corporations Act it would be possible for a trustee in bankruptcy of a beneficiary to take control of the trust assets.

It must be kept in mind that this decision was a decision of a single Judge and was a significant departure from the traditional views held and accepted concerning trusts.